What Asia’s richest man considers his life’s “most challenging” mission has left the stock market unconvinced, nervous — or both.
In June 2021, Mukesh Ambani committed $10 billion to clean power and fuel. After India made a surprisingly bold pledge in December that year to switch to non-fossil-fuel sources for half of its energy needs by the end of the decade, the tycoon upped his green wager sevenfold.
With the pandemic over, the conglomerate is experiencing a fresh growth spurt across business lines. The 19% surge in March-quarter profit beat analysts’ estimates, while the 37% boost to capital expenditure showed that Ambani is again in expansion mode. Yet, green technologies — the centerpiece of the strategy — aren’t getting much attention. Either investors don’t believe that India is ready for a hydrogen revolution, or they’re worried the group will overstretch its finances in chasing the rainbow.
It isn’t that investors have to wait for a quarter century to test the thesis. There’s bound to be a more immediate impact on earnings from repurposing old-energy assets. Reliance’s oil-to-chemicals, or O2C, unit is one of the world’s biggest consumers of dirty or gray hydrogen, extracted from petcoke, a heavy refinery residue. The near-term plan is to gasify the petcoke to produce less-polluting blue hydrogen, with the carbon released in the process captured and stored. Transforming legacy O2C into a “sustainable, circular and net-zero-carbon” business “shall generate growing returns over decades” by extending the economic life of existing assets, Mumbai-based Nuvama Wealth Management Ltd. says.
Reliance is aiming for 100 gigawatts of solar-power installations by 2030. That’s a big chunk of India’s overall goal of 450 gigawatts, a sevenfold increase from last year. It’s also investing in electrolyzer manufacturing, fuel cells and energy storage, including a sodium-ion technology that could work out cheaper than the lithium-ion batteries used in electric vehicles.
That explains why investors are skittish. Ambani upended India’s telecom business with scorched-earth pricing: free voice calls and the world’s cheapest data costs. To gather more than 400 million customers, he had to pick the right technologies from around the world and assemble them into Jio, his 4G service, in a supportive policy environment. By comparison, switching a largely fossil-fuel-powered economy of 1.4 billion people to yet-unproven green hydrogen is a far more adventurous undertaking. While the Indian government will support the transition, it simply can’t match the subsidies that the US is throwing at its clean H2 pioneers to help them cut the price for consumers by half.
It’s all a bit too much for the market to process. By contrast, Ambani’s ambition to create a borrowing platform for merchants and consumers — and taking it public separately — is both a simpler story and a surer bet. It could put some zing back in the Reliance stock by unlocking value from the group’s rising heft in telecom, media and e-commerce data. Climate technologies will be a different game altogether. Getting investors to rally behind Ambani’s most challenging mission yet is going to take more work.
Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper
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